Step 2 buyout by USDA may be non-starter

Hopes that USDA might offer a “buyout” for Step 2 appear to have been severely deflated during a telephone conference call between USDA and National Cotton Council representatives.

USDA and NCC leaders have been wrestling with what to do about Step 2 since a WTO dispute panel ruled it illegal. A WTO appeals panel upheld that decision last March and said the U.S. government must eliminate Step 2 by July 1.

On July 5, Agriculture Secretary Mike Johanns announced he was recommending Congress terminate Step 2 “as soon as practical.” That appeared to mollify the Brazilian government, which brought the case against Step 2 to the WTO, but Brazilian officials have once again begun making threats about retaliation.

The Council argues that any steps to end Step 2 should wait until the end of the current marketing year — next July 31 — to avoid disrupting U.S. cotton exports, the primary beneficiaries of Step 2 payments.

USDA officials say they think Congress should terminate Step 2 by the end of the calendar year to bring the United States into compliance with the WTO ruling. They also were said to be talking about a compensation program along the lines of the tobacco buyout to help soften the blow.

But in the telephone conference call, Floyd Gaibler, deputy undersecretary of agriculture for Farm and Foreign Agricultural Services, told Council leaders that USDA could not offer a compensation program for early termination of Step 2.

Gaibler said USDA would not oppose Council efforts to lobby Congress for a buyout, but the Agriculture Department believes that any funding for such a program would have to come from the savings generated by ending Step 2. Step 2 cost the U.S. government about $264 million in 2004.

Although farm groups have mostly maintained a united front on issues such as payment limits, the Cotton Council may have to fight this battle alone, sources say. Other commodity organizations are rubbing their hands over the potential savings.

“They're like sharks circling in the water,” a Cotton Council staff member said.

On another front, U.S. Trade Representative Rob Portman isn't the only one taking flak for possibly exceeding his authority after he proposed a 60-percent reduction in U.S. farm subsidies during a Doha Round negotiating session in Zurich, Switzerland.

Portman's proposal drew scathing criticism from some farm organizations and a letter from Senate Agriculture Committee Chairman Saxby Chambliss reminding him that Congress decides whether U.S. price supports are reduced.

The French government reportedly complained that European Trade Commissioner Peter Mandelson overstepped his brief when he proposed cuts in EU farm subsidies “without prior consultation with EU member states.”

In several speeches in recent months, Mandelson, who hails from the United Kingdom, repeated claims by the British charity Oxfam that U.S. farm subsidies, particularly for cotton, are responsible for poverty in Africa. You have to wonder if those comments also don't reflect the opinion of the EU member states.